From Creative Destruction to Creative Disruption: Lessons for Selected and Strategic Industries

Jean-Pierre SEGERS Riga Technical University; Université de Liège and PXL, Hasselt, B-3500, Belgium

Elina GAILE-SARKANE Riga Technical University Riga, LV1048, Latvia

ABSTRACT is up to us whether we will influence it or simply allow it to happen, not only in science-knowledge but also in human In March 2020, the world was hit by a perfect storm: the interactions and behavior, basically all aspects of our up-to-now COVID-19 pandemic. Already in 1994, Laurie Garrett made a comfortable life. case for “newly emerging diseases in a world out of balance”, The COVID-19 pandemic can be cataloged as a so-called “Black expressing concern about the appearance of new infectious Swan”: a random event that underlies almost everything about diseases. More recently, many other thoughts and warnings our world and our personal lives. A black swan is a highly were expressed on this topic, for example by Bill Gates in his improbable event, unpredictable and carrying with it a massive 2015 TED Talk. And now it is happening, shaking the very impact (Taleb, 2007) [20]. foundations of our society and economy. The outbreak of the Wuhan Coronavirus (COVID-19) disease has transformed the Recovering from Covid-19 put our economic systems to the test. world as we know it into a new normal – a kind of a brave new According to Chesbrough (2020), innovation will have an world 2.0 – disrupting the business models of civil society, important role to play. Innovation is often analyzed in terms of (higher) education, world economy, business, governments, costs. In the case of an unpredictable pandemic, time is so policies. It is clear – we are on the eve of a paradigm shift, and valuable and essential that the question of costs is far less it is up to us whether we will influence it or simply allow it to important than the ability to get to a solution sooner. The global happen, not only in science-knowledge but also in human impact was far stretched and quickly visible with: interactions and behavior, basically all aspects of our up-to-now − slowed economies and societies; comfortable life. − affected financial markets; Disruption came in a different shape and form. This article − decreased revenues for businesses and industries; discusses the impact of the COVID-19 pandemic on a number − disturbed global supply chains. of selected and strategic industries The multilevel theory of national competitive advantage of industries and nations (Porter, 1990) [13] focuses on why certain Keywords: Corona/COVID19, Creative disruption, Strategic industries within a nation are competitive internationally. Porter industries. argues that the competitive advantage of certain industries in different nations depends on a dynamic interaction of four aspects as illustrated below in his “diamond model”, connecting 1. INTRODUCTION firms, industries and nations.

"I think there are good reasons for suggesting that the modern age has ended. Today, many things indicate that we are going through a transitional period, when it seems that something is on the way out and something else is painfully being born. It is as if something were crumbling, decaying, and exhausting itself, while something else, still indistinct, were arising from the rubble." Vaclav Havel (1994)

In March 2020, the world was hit by a perfect storm: the COVID-19 pandemic. Already in 1994, Laurie Garrett made a case for “newly emerging diseases in a world out of balance”, expressing concern about the appearance of new infectious diseases. More recently, many other thoughts and warnings were expressed on this topic, for example by Bill Gates in his 2015 TED Talk. And now it is happening, shaking the very foundations of our society and economy. The outbreak of the Wuhan Coronavirus (COVID-19) disease has transformed the world as we know it into a new normal – a kind of a brave new world 2.0 – disrupting the business models of civil society, (higher) education, world economy, business, governments, Fig. 1: The Competitive Advantage of Nations – Diamond policies. It is clear – we are on the eve of a paradigm shift, and it Model (Porter, 1990) [13] method is widely used for examining technology and innovation 2. CREATIVE DESTRUCTION adoption issues. The proposed industries are: Creative Destruction (Schumpeter, 1942) [17] is an 1. the civilian aerospace and defense industry, in evolutionary process within capitalism that “revolutionizes the particular the case of Airbus Group (Airbus economic structure from within, incessantly destroying the old Industries) [1], [2]; one, incessantly creating the new one” (Pfarrer & Smith, 2005) 2. the biopharmaceutical industry; [12]. Innovation and entrepreneurship occupy a decisive role for 3. Big tech. economic development, even more in times of crisis. The entrepreneur is the central player in the market process. The 3. DISCUSSION OF SELECTED AND STRATEGIC successful firm must constantly be innovating to sustain INDUSTRIES profitability and to avoid the “perennial gale” of Creative Destruction. According to Schumpeter (1942) [17], large, Civilian aerospace and defense industry: the Airbus case. established enterprises play the role of innovative leaders. Airbus began operation in 1970 (Blagnac, France) and quickly Creative destruction refers to the phenomenon of economic became a powerful symbol of what can be achieved by change through the creation of new ways of doing things that European political and economic cooperation (McGuire, 1997) endogenously destroy and replace the old ways. The term [10]. The company, formally known as the European Aeronautic “creative destruction” is usually used to emphasize the dynamic Defence and Space Company (EADS) is a civilian aerospace nature of the modern economic system. According to and defence consortium that connected Aérospatiale-Matra Schumpeter, entrepreneurs initiate gales of creative destruction (France), DASA (Germany), Construcciones Aeronáuticas and therefore destroy existing equilibriums. Creative destruction (Spain) and British Aerospace (the United Kingdom). From the results from challenges by disruptive technology (Kessler, 2013) European perspective, Airbus was an entirely appropriate [9]. response to the United States dominance in the global market for Disruptive innovation means that speed is important to create commercial aircraft, its main competitor being Boeing. Airbus and sustain competitive advantage of firms amidst rapidly has risen to a position where it now has a 50-50 split of the changing business environments. The phenomenon of disruption global market with Boeing. Airbus is thus a good illustration of was coined in the mid-1990s (Christensen, 1997; Christensen et how European nations can work together to compete al., 2018; Schmidt and Herting, 2020) [6],[7],[16], showing how strategically on the international stage (see Porter’s diamond new entrants challenge established organizations – incumbents – model discussed earlier). by introducing new offerings, which develop along an Over the last decades, Airbus has become the orchestrator in the alternative performance trajectory. leading European aerospace ecosystem with many European Disruptive technologies are commercialized in niches of markets subcontractors, e.g., in Belgium (Segers, 2017a) [18]. Without but they can penetrate mainstream markets and compete with related and supporting industries such as engines, avionics and incumbent technologies. Christensen (1997) [5] observes that materials, a key industry such as aerospace cannot become established firms face an “innovator’s dilemma” that is globally competitive. It is this that made it possible for Airbus to associated with internal resource-allocation processes leading succeed. them to systematically underinvest in disruptive technologies. An interesting evolution is the way Airbus has moved toward The lack of business model innovation is the main reason for open innovation (Segers, 2017a; Airbus, 2020) [18], [1], [2]. incumbents being disrupted. Many current cases across with greater use of outsourcing in their business models (Saias industries show how business models affect disruptive change in and Kapadia, 2016) [14]. The aerospace industry is established industries (Christensen et al., 2018) [6]. characterized by so-called value chain deconstruction: a focus on core business-critical competencies, together with the outsourcing of non-core activities. The outsourcing arrangements allow them to gain access to technology specialists that help them make the most of new innovations and models. Airbus is enhancing its innovation process through the operation of a global network of accelerator facilities – called Airbus BizLabs (2020) [1], [2] – to speed up the transformation of ground-breaking ideas into valuable business propositions, all within an extended innovation ecosystem. This set-up has two primary methods for meeting its goal: Fig. 2: From Creative Destruction to Creative Disruption • accelerating the pace at which Airbus (Segers, 2020) commercializes its own innovations; • drawing upon and developing more ideas from Creative disruption is synonymous with creativity, challenge outside Airbus, including customers and and change. The aims of creative disruption include creating companies from other business sectors. new business innovations that lead to new markets – i.e. impact Another important feature is the use of subsidies by Airbus – the of emerging technologies – and new marketing techniques. so-called government shelter – through extensive subsidization In the next section, a number of selected and strategic industries in public private partnerships (see Fig. 3). are explored, drawing on the concepts of multiple case study Together with competitive product matching towards Boeing, research design (Yin, 2009; 2012) [23], [24] and the use of this represents an interesting example of a company preparing secondary qualitative data. The multiple case study research itself strategically for moving beyond government shelter (Sarathy, 1994) [15].

Fig. 4: Profile of COVID-19 vaccine developers (PPP) - Thanh Le, et al. (2020) [21].

Pharmaceutical and biotechnology companies and clinical research organizations are taking the race to the limit to Fig. 3: The Airbus PPP (Segers, 2020) develop a coronavirus vaccine, simultaneously waking the general public up to an important warning sign: the time of And like so many industries, Airbus is now facing multiple going from concept to marketable product, the time needed to emerging global issues such as climate change and produce vaccine. The pharmaceutical industry is stressing that sustainability, technological disruption, the current COVID-19 the finish line is at least 12 to 18 months away. It hopes to pandemic and an evolving competitive landscape with new compress the time to market distribution to within 2021 at the business models, new mobility concepts and new transversal earliest, being significantly sooner than the 10 to 15 years the technologies. process of getting a new vaccine to market typically takes. The joint battle against the coronavirus creates new business Biopharmaceutical industry models of cooperation and coopetition. It provides a The COVID-19 pandemic undermines the world economy and momentum for new public private partnerships to shift the our health systems. The principles of disruptive innovation are world we used to live in. COVID-19 poses an unprecedented applicable to the healthcare sector as it can improve both challenge for big pharmaceutical and biotechnology affordability and accessibility in healthcare so that more companies which creates new possibilities and models for people get the care they need. The biopharmaceutical industry coopetition and demonstrates real open innovation and value within biotech clusters around the world are more than ever co-creation opportunities and approaches. Coopetition and considered as strategic industries in many countries. They are open innovation here mean that companies cooperate on life the driving forces of the economy and for global healthcare, as saving projects while maintaining the drive of competition in measured by R&D-intensity, the level of patent applications, the long run, making the race to find both medicines and the number of drugs in the pipeline, venture capital invested vaccines for the COVID-19 pandemic more efficient and and the number of new biotechnology firms (Segers, 2017b) effective. According to Thanh Le, et al. (2020) [21], it will be [19]. important to ensure coordination of vaccine manufacturing and The first and most important task today is to defeat the supply capability and capacity to meet demand. invisible enemy – the coronavirus. The COVID-19 pandemic Strategies of research alliances and acquisitions in the drug is reshaping the way companies collaborate and innovate. It discovery industry may help incumbents to overcome inertia triggered an unprecedented and intense level of global R&D both in the initial stage of research and in the later stage of activity and collaboration by research teams in companies and development of disruptive technologies (Coccia, 2020) [8]. universities across the world in the search for vaccines. As of Although the R&D competition remains as fierce as ever July 2020, 160 vaccines – this number is constantly rising before, given this “normal” business model, a number of (World Health Organization (2020); Callaway (2020)[3] – are public private partnerships for the financing of clinical studies being developed against SARS-CoV-2, the coronavirus that and the enhancement of production capacity worldwide have causes COVID-19: been speeded up. Some good practices are: − 21 candidate vaccines in clinical evaluation; − finance independent research projects to develop − 139 candidate vaccines in preclinical evaluation. vaccines against emerging infectious diseases; Some clinical trials involve next-generation vaccine − GAVI, the Vaccine Alliance. Its public-private technology platforms which have never been used in a business model draws on the skills and strengths of licensed vaccine before. its core partners like the World Health Organization, Leading pharmaceutical and biotechnology companies like UNICEF, the World Bank and the Bill & Melinda Johnson & Johnson (Janssen), Pfizer-BioNTech, Merck & Co, Gates Foundation. Gavi and its Alliance partners are the Sanofi-GSK alliance, Gilead, Moderna Therapeutics, providing immediate funding to health systems and Inovio Pharmaceuticals, together with research universities enabling countries to purchase diagnostic tests; and hospitals (e.g., the alliance of Oxford University − EFPIA, the research-based pharmaceutical Hospitals, Oxford Biomedica and AstraZeneca), governments industry in Europe, launching clinical development and broader international scientific community are working of potential vaccines against the coronavirus; together in public private partnerships (PPP) like never before − IMI, the Innovative Medicines Initiative: the to produce a coronavirus vaccine (see Fig. 4). development of therapeutics and diagnostics to

tackle current and future coronavirus outbreaks (drug development and repurposing); − government-led consortia of pharma, biotech, IT and academia, e.g., in Belgium; − open government approaches to tackling COVID- (Chesbrough, 2020) [4]. The world witnesses a time where 19 (Mention, 2020) [11], building trust between well known startups and scaleups are now outperformed by government and citizens, digital platforms or apps; big tech in a kind of reversed disruption. − Operation Warp Speed in the United States, a Artificial intelligence (AI) is disrupting value chains. national program with the Biomedical Advanced According to the World Economic Forum (2018) [23], there Research and Development Authority (BARDA) to are several distinct value propositions for AI in the creative accelerate the development, manufacturing, and economy. One disruption will undoubtedly come in the form distribution of COVID-19 vaccines, therapeutics, of automation and augmentation of human creative processes. and diagnostics; The same is happening with Blockchain technology which has − The Accelerating COVID-19 Therapeutic grown in recent years. It is primarily seen as a platform for Interventions and Vaccines (ACTIV) partnership, cryptocurrencies, but further applications are rapidly emerging i.e. a public-private partnership to speed COVID-19 when the technology is applied to other data structures, such as vaccine and treatment options by the National ownership and contract details. AI will allow to obtain or Institutes of Health in the United States. It brings sustain a competitive advantage or to move into new together more than a dozen leading businesses. biopharmaceutical companies, the Food and Drug COVID-19 has also stimulated the use of the 3D printing Administration and the European Medicines Agency technology. Here also, universities and research centers are to develop an international strategy for a coordinated working closely together with new technology-based firms – research response to the COVID-19 pandemic. high tech startups and scaleups. In Belgium, for example, the 3D-printing ecosystem is introducing new innovative business Big Tech models and working on disruptive possibilities of 3D printing It’s crucial that our economies embrace innovation and thus technology for business and society. Additive manufacturing create societal and business value. We live in a time frame that software solutions and sophisticated 3D printing services can is commonly referred to as the 4th industrial revolution. Many be applied in a wide variety of industries, including healthcare powerful new technologies and platforms have emerged (Fig. (3D bioprinting of live stem cells; artificial implants, medical 5). Industry 4.0 relies on the cloud, internet of things (IoT), big image processing, surgical simulations), automotive, data, 3D printing (additive manufacturing), artificial aerospace, design and consumer products (Segers, 2017a) intelligence, augmented reality, virtual reality, blockchain and [18]. drone technology. Accordingly, industry 4.0 is about product We live in a century of robots, with a fast-growing subfamily development, manufacturing, supply chain and new business called drones. The development of commercial drone models for future growth (Treves and O’Shea, 2020) [22]. applications in close partnership with other emerging technologies such as artificial intelligence is again a good example of COVID-19 enhanced innovation, e.g., with respect to crowd tracking and e-retail.

4. CONCLUSIONS

In terms sectors affected by COVID-19 one can mention tourism and transport - especially aviation. Due to the virus, we can observe both the closure of factories, prolongation of the delivery time of production to markets, shaking of financial markets etc. All areas are affected. COVID-19 is a catalyst for change in all industries and gives unexpected stimulus for innovation development This is obvious – world is going through a transitional period – society is breaking old habits and agreements with an aim to Fig. 5: Emerging Technologies (Gartner) [26] speed up movement to the future. Not all changes are equal or easy to make. It tackles all elements – financial, technical, The COVID-19 pandemic created a new and crucial human… some elements are easy to change, some not. It is time momentum for these technologies and platforms. The world is to break old corporate habits, adapt and improve, and create in need of a rapid development and manufacture of critical new business models – to better succeed in a global personal protective equipment, testing material and competition. diagnostics, access to vaccines, ventilators for the intensive care units, mouth masks, etc. In line with the sense of urgency, 5. REFERENCES digital healthcare (e-health) and medtech, the use of big data and artificial intelligence are booming. COVID-19 thus [1] Airbus (2020). BizLab. Toulouse. https://www.airbus- strengthens big tech companies like Facebook, Amazon, bizlab.com/ Apple, Microsoft and Google. [2] Airbus (2020). Open Innovation. Collective intelligence: At the same time, big manufacturing companies like General our approach to innovation. Toulouse. 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